The Secured Transactions Law Reform Project put out a number of discussion papers in January 2017. Louise Gullifer, the Executive Director of the Project, has discussed those already in a blog post from March 2017. I wrote the paper on Priorities and, towards the end of that paper, raised the issue of the effect of registration of quasi-security interests without re-characterising them as security interests, a topic also covered by Magda Raczynska in her discussion paper on asset finance.
Re-characterisation of a retention of title clause would entail the purchaser of the asset, who under current law obtains title after it has been paid for, being the owner and the seller, having a registered security interest. Registration without re-characterisation would preserve the general law position that the buyer only receives title on payment. The Cape Town Convention on International Interests in Mobile Equipment requires retention of title clauses to be registered as an international interest under article 2(2), but leaves it to national law to decide whether they are re-characterised. Quebec also has a system where a retention of title clause is registered under article 1745 of the Quebec Civil Code, but where – unlike under the Personal Property Security Acts in force in common law Canadian provinces – it is not re-characterised. In a forthcoming article in the Journal of Business Law in 2018 I explore this difference in more depth.
If we think reform of retention of title clauses is warranted – and the experience of PST Energy 7 v OW Bunkers (Malta) Ltd  UKSC 23, where a sale on retention of title terms was deemed not a sale at all, suggests that it is –, we might seek to register those clauses. The logic of registration, however, demands results similar to – if not functionally identical to – those of re-characterisation. The UNCITRAL Legislative Guide on Secured Transactions discusses what it describes as the unitary model of registration and the non-unitary model. The former involves re-characterisation of quasi-security interests such as the retention of title clause; the latter does not. However, there is a catch. The catch is that the Guide recommends that the outcome of priority and other disputes be functionally the same as under the unitary scheme.
We can illustrate this point in more detail by looking at Quebec law. Under the Quebec Civil Code, a retention of title clause must be registered within 15 days. Late or non-registration entails priority being deferred to earlier registered interests under article 1749 QCC. In other words, although the creditor retains ownership of the goods under the late-registered retention of title clause, he cannot claim them free of the rights of a creditor who had previously registered an interest. That is necessary as an incentive to register. The retention of title creditor’s ownership is therefore not fully respected.
The Commonwealth Personal Property Security Acts all have provisions dealing with when a purchaser of an asset subject to a security can take free of that security – ie, can obtain title to the goods and not be subject to the security interest. Those purchasing from a seller doing so in the ordinary course of business take free, for example (see in Australia Personal Property Securities Act 2009 (Cth) s 46). It is unreasonable to expect a party in such circumstances to ask whether this really is an allowable transaction or to hunt through a register; all this would achieve would be to reduce the ready marketability of assets. Currently the question of how we deal with retention of title debtors selling assets to which they do not have title is found in the Sale of Goods Act 1979, and the Factors Act 1889. Two such provisions are section 25(1) Sale of Goods Act 1979 and section 9 Factors Act 1889, which deal with buyers, or those who have agreed to buy goods, who have no title but are in possession. Whether the third party purchaser obtains good title depends, partly, on whether he had notice of ‘any lien or other right of the original seller in respect of the goods.’ Registration counts as notice. This is the point of registration – to provide a publicity function so that third parties can search the register and be aware of encumbrances on the debtor’s assets. If registration did not count as notice, there would be little incentive to search and find such interests. If retention of title clauses were registered, we might think that prima facie the purchaser would have notice and would not receive good title. Clearly that will not provide an adequate outcome where the transaction appears to be in the ordinary course of business, so some qualification is needed. Quebec law therefore provides for purchasers in the ordinary course of business (article 2961.1 QCC) to take free of the retention of title clause where it is over a universality or class of assets (inventory).
In short, Quebec law replicates in many respects the features of a Personal Property Security Act. Functionally, the outcomes are similar, if not identical. If so, let’s be honest: if we decide to register retention of title clauses, although politically such a decision seems a long way off, maybe we should re-characterise as well.